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Welfare Reality Check

Will welfare reform work? Those with long memories remember another massive public reform, called “deinstitutionalization.” In the name of helping mental patients, government moved them out of hospitals into “community” settings. The most visible result was homelessness.

To escape a similar fate, states are going to have to find proven welfare-to-work strategies — quickly. Their search should lead them to a small company headquartered in New York City called America Works.

Already well-known among reformers, America Works is the brainchild of a husband-and-wife team, Peter Cove and Lee Bowes. Cove and Bowes devoted a decade to a nonprofit organization that helped welfare recipients find jobs, then went for-profit in 1984 because they needed investors to expand.

Over the past decade, they have placed more than 5,000 welfare recipients in jobs that pay an average of $15,000 a year and provide full medical benefits. They have worked in New York, Albany, Buffalo, Hartford, Cleveland, Daytonm and Indianapolis. Their average client: a woman with two children and no high school degree, who has spent 4.9 years on welfare.

An astounding 85 percent of those they have placed have kept their jobs for at least a year, according to a 1993 study by Ernst & Young. (More recent New York state data show that this approximate rate still holds.) Yet nationwide, almost 40 percent of women who leave welfare for jobs are back on the rolls within a year.

The “Supported Work” Model

What’s the secret? There are two. America Works is free of government red tape — so it can do things like pay people on commission, to motivate them. And it has discovered a methodology called “supported work.”

The company functions like a job placement firm, with a twist. It saves employers the trouble of recruiting for entry level positions, and it minimizes their risk by keeping new hires on its own payroll for their first four months on the job and actively helping with the transition.

Employers avoid unemployment, workers compensation and disability insurance exposure for the four-month trial period. To top it off, they get a federal tax credit. Total savings: up to $2,500 per hire. During the trial period, the company pays America Works a negotiated fee, and America Works pays the employee the minimum wage. It uses the difference to help pay for supported work — intensive coaching to help the welfare recipient make it.

The adjustment process starts, before the trial placement, with a strict one-week orientation period. Every participant must show up on time, dressed appropriately, with a positive attitude. Five minutes late and they have to start over.

Those who survive move on to a brief training period — typically five weeks — in which they learn basic interviewing skills, office skills, and most important, how to dress and behave on the job. The biggest obstacle to hiring, according to Cove and Bowes, is not knowing how to be “on time and reliable, take direction and behave appropriately.” When the welfare recipient is ready, the real work starts. An America Works representative visits regularly, helping her learn the unwritten rules of the work place and deal with the unexpected troubles that typically send people back to the welfare rolls.

“We have a person doing on-site job coaching and support and handling everything from day-care issues to housing court, from getting your utilities turned on to organizing counseling services,” explains Bowes. “That is the key to our success.”

After four months, the employer decides whether to hire the person. At this point — or in Indianapolis, after two more months on the job — America Works get paid $5,000 to $5,490 by the welfare department. If the person doesn’t last the four or six months, America Works doesn’t get paid. (New York City is a slight exception; it pays the first $985 when America Works first places the client in a job.)

The model works because it minimizes risk for both the welfare department and the employer. Meanwhile, the public gets a big return on its investment.

Lessons Learned

What can states learn from the success of America Works? First, to get people permanently off welfare, we have to pay what it costs. Many states are now rushing to pay nonprofits $1,500 or less to place welfare recipients in minimum wage jobs. That won’t be enough.

When Columbia University researchers compared two cheaper public programs to America Works, they found that most public program participants returned to welfare within a year. While those programs spent less to place each person initially, it cost them four times as much to keep one person off welfare for a full year.

Second, we’re going to need the creativity of private enterprise. Welfare departments buy computers from for-profit firms, but few will buy job placement from them. This bias is misguided. Any institution — public or private — should be able to compete to move welfare recipients into jobs, as long as it is paid only for performance.